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Creditors are not required to accept proposals of "no practical advantage"

In the High Court decision of Herbert v Allied Nationwide Finance Limited & Others, the Court declined to approve a creditor's proposal under the Insolvency Act 2006 on the grounds that the terms were not reasonable and not calculated to benefit the general body of creditors.

Mr Herbert had debts of approximately $29 million. Under his (and his wife's) proposals, a sum of $10,000 was to be distributed to all creditors, being approximately 0.016 cents in the dollar. Mr Herbert also proposed to continue to meet the mortgage payments on his family home, valued at approximately two million dollars.

In declining the proposal, the Court described this return as being of no practical advantage to the creditors, and held that the opposing creditors should not be constrained to accept a proposal of this kind. Further, due to the large scale of losses in the case, it was found that there was a public interest in scrutiny by the Official Assignee of Mr Herbert's affairs. The Court noted that the global financial crisis could not be given as a complete reason for the failure of property developments. The Court also said that the preference given by Mr Herbert to secured creditors (the ongoing mortgage payments) was unsatisfactory. In light of these factors, and particularly the small amount which would be returned to creditors, both proposals were declined.

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